What Has Been the Legacy of Neoliberalism in Latin America?

To cite this article: Sturt-Schmidt, James (2018). What Has Been the Legacy of Neoliberalism in Latin America?, The Millennial [Online], Available at: (this page URL).

From its European roots, neoliberalism arrived in Latin America in the late 1980s and early 1990s, with right-wing governments in Brazil, Mexico, Venezuela, Chile and Peru hoping to bring about revolutionary economic change by adopting the World Bank’s so-called ‘Washington Consensus’, a neoliberal formula of market-orientated policies (Flores-Macías, 2009). Barbara Stallings (2000) referred to this period of change as the “most significant transformation of economic policy since World War II” (p5.) However, the results were far from revolutionary, instead stalling GDP, minimizing social policies, exacerbating poverty, unemployment and subsequent violence, and failing to counteract inflation (Belem Lopez, 2017). This essay will explore the implementation of neoliberal politics in Latin America and analyse its social and economic effects, from the late 1980s until present day, focusing on two examples in Chile and Argentina.

Neoliberalism is a very difficult concept to define, mainly because it has been defined in so many different ways that it is difficult to reduce back into one single definition. It could perhaps be understood better as a discourse, a conceptualisation that would envelop the word’s utilisation in political, cultural, social, and economic contexts. A concise political-economic definition that offers an overarching understanding of the way neoliberalism operates in society, comes from Dawisson Belem Lopez (2017), who explains, “The state is purposefully reduced in its scope of action to a minimum – by way of policies associated with fiscal austerity, financial deregulation, free trade and the privatisation of public assets, among others – so nothing can prevent the market and its profit-oriented agents from reaching a fair point of equilibrium between demand and supply. ”

Jordan (2016) further explains, “Based on principles of classical 19th-century economic liberalism, the economic and political framework of neoliberalism advocates for a dramatically limited role for the state, which should only act to maintain the integrity of contract law and private property as a means of supporting the market.” So we can see that neoliberalism differs from other systems of macroeconomic governance, not by requesting the state refrain from interfering in the free market, but rather requesting it interfere, when necessary, precisely to ensure the free market can function at its optimum capacity. The state becomes a means for the free market to control society and its members for economic ends, rather than a medium through which society place restrictions on the free market. The free market uses the state to make laws that protect private property, and to utilise institutions – education, police, even military – as a means of control when necessary (Iber, 2018). In the neoliberal agenda, restoring a market economy takes priority over human rights and social justice (ibid.).

Of course, neoliberalism has a long history as a economic theory – or perhaps better said, theories – before it was ever adopted and implemented by politicians, who have converted the theory into something with very tangible consequences; some positive, and some negative. Since its implementation, it is perhaps fair to say that neoliberalism has become much more than an economic perspective, rather it now permeates every level of society. In regards to the plurality of neoliberalism, Mirowski and Plehwe (2009, p.2) argue that, “Hegemonic neoliberalism needs to be thought of […] in terms of both political philosophy and political practice”, further explaining that there are “numerous and sometimes confusing ways in which neoliberal ideas have been historically related to each other, to social classes, and to political and economic regimes.” As an example of how neoliberal economics have been applied in different ways across different forms of society and government, one may consider how individual freedom was used as a key value of neoliberalism in Europe – for example in Britain – in the opposition of the socialist regimes of Eastern Europe (Wainwright 1994), while in Latin America it was mainly implemented by authoritarian neoliberal regimes, where Europe’s neoliberal message of individualism and freedom would appear far removed.

Chile

A key case study to understand neoliberalism in Latin America is Pinochet’s Chile. Even before Pinochet’s coup d’état in 1973, Chicago economist Theodore Shultz considered Chile a ‘laboratory’ (Valdés, 1995, p126, cited in Mirowski and Plehwe, 2009), and it was arguably the perfect laboratory for neoliberalism when Pinochet’s military government gave full economic authority to a group of neoliberal intellectuals, known as the ‘Chicago Boys’, whose task was to transform the Chilean economy. This makes the Chilean case somewhat different to other countries that have adopted neoliberal policies, since a democratic country would require the deliberation of politicians, potentially votes in parliament, and the opportunity for the country’s citizens to vote for a different leader if they deem the neoliberal changes unfavourable. We will see later than the ‘democracy’ of other Latin American countries that adopted neoliberalism did not necessarily offer voters much choice due to their authoritarian histories.

In a dictatorship, neoliberal policies can be implemented without the consent of other politicians or voters, and those intellectuals that best understand neoliberal economics can be given full autonomous control to oversee the transformation. For this reason, some neoliberal scholars (see Foxley 1986; Martínez and Díaz 1996) believed a military government as necessary during the adjustment to neoliberalism. Despite the influence of Chicago School neoliberal thinking, and the specific nature of the government at the time (military dictatorship), Mirowski and Plehwe (2009) make it clear that Chilean neoliberalism “cannot be readily understood on the basis of some clearly defined, pre-packaged, one-size-fits-all set of ideas, and then be simply identified with generic antidemocratic authoritarianism” (p.308), and therefore much deeper analysis is required to truly understand this key example of neoliberal transformation in Latin America.

The ‘Chicago Boys’ were Chilean economists that studied in Chicago, and were heavily influenced by the neoliberal ideas of Friedman (1951; 1953; 1962; 1974). Under the Pinochet regime, they were tasked with redirecting the Chilean economy toward global competition. They achieved this by replacing the previous model of import substitution with a focus on exportation, abolishing numerous tariff and non-tariff barriers, and attempting to curb inflation through “highly restrictive monetary and fiscal policies” (Mirowski and Plehwe, 2009, p.306). These radical economic changes, however, required equally radical change across society, requiring “a reconfiguration of the relations between capital, the state, and labor” (ibid.), which was explicitly laid out in a new constitution. Here one can begin to understand how an economic transformation to neoliberalism is not, in fact, merely economic, but rather a radical social change affecting every level of society.

Regarding the much-debated question of the extent to which the neoliberal transformation of Chile was caused by neoliberal intellectuals and their ideas, Mirowski and Plehwe (2009) argue that, “We cannot adequately explain the power and relative influence of neoliberal intellectual entrepreneurship in Chile through theories that elevate “technocracy” (economic professionalism), “domestic institutions” (the military dictatorship), or “interest groups” (power elite networking) to center stage without considering the transnational evolution of Chilean neoliberalism” (p.307). They therefore consider, in detail, the “historical trajectories of neoliberal knowledge and ideas in Chile” (ibid.), and argue that Chile is a “crucial for transnational neoliberal resistance against the dominant post-war development paradigms of state-driven modernization, import substitution, and social reform” (p.308).

In an effort to counteract Marxist ideologies in Latin America, the United States provided training grants for Latin American university students to study in the US. Influencing Chilean academics was arguably of great importance for this programme, since the United Nations established the ECLA (Economic Commission for Latin America) in Santiago in 1948, whose strategy for the development of import substitution recommended a selective retreat from the global market, to “enhance regional economic cooperation and alter the international division of labor to the advantage of the newly industrializing countries” (Mirowski and Plehwe, 2009, p. 309). This strategy was at odds with the neoliberal ideas of critical development theorists, particularly at the Chicago School, whose economics faculty made an agreement with the Catholic University of Santiago in 1956, as part of a US program to offer technical assistance and economic aid to ‘underdeveloped’ countries (ibid.).

This agreement was followed by Project Chile, which saw four economists from the Chicago department travel to Santiago to plan the training program, and was finally approved in 1956. This program saw some thirty Chilean economists trained in Chicago over the following decade, and succeeded in altering the teaching of economics in the entire Chilean University system (ibid.). After the end of Project Chile, funds from both US and Chilean government departments, universities and foundations facilitated the training of even more Chilean students, resulting in more than one-hundred and fifty Chilean students studying at Chicago over three decades (Mirowski and Plehwe, 2009, p. 310). It is clear here how the influence of US neoliberal intellectual’s ideas, and their deliberate delivery into the teaching of economics in Chile, played a key role in the early development of neoliberal thinking in Chile and Latin America.

Not only was this US influence key to developing neoliberal thinking in Chile, but it directly produced the intellectuals that implemented much of the economic change that transformed Chilean economy and society. The Chilean economists returning from their training in Chicago did not merely return with heads full of neoliberal ideas, but rather almost immediately found themselves in positions that enabled them to bring those ideas into being or to share them with the next generation of economists. Many filled academic posts at the Catholic University of Santiago, others that had affiliation to the ruling party (Christian Democratic Party) entered state agencies, and others filled positions at the Central Bank, the budget agency, and at ODEPLAN (Mirowski and Plehwe, 2009) – the supraministerial planning office that became instrumental to the economic change implemented by the ‘Chicago Boys’ under Pinochet.

Following the trajectory of Chilean neoliberalism across the decades that followed Pinochet’s dictatorship, one finds that a sequence of four centre-left democratic governments maintained free-market policies, tempering rather than parting ways with neoliberalism in order to address the social equality issues it had caused (Undurraga, 2015). Neoliberalism remained popular largely due to the improvements in material conditions felt by the middle classes; “better quality of housing, roads and infrastructure, increased private consumption and access to education” (ibid., p. 11). The support from the middle classes, however, was not shared by everyone. Starting with the ‘penguin’ student movement of 2006, Chileans began to actively mobilize against neoliberalism due to the structural inequalities it had created (or worsened). In 2011, this movement gained further momentum with protests against for-profit education, and other protests since have focused on a multitude of issues perceived to be caused or exacerbated by neoliberalism, including environmental issues, poor worker’s conditions, and limited consumer rights (ibid.).

The current situation of neoliberalism in Chile is rather uncertain. President Bachelet – elected in 2014 – showed a willingness to move away from neoliberal policies, promising reforms in taxation and education (arguably partly to win the angry student vote), and to an extent succeeding in implementing some of these reforms. However, Chile’s current president, Sebastián Piñera, seeks to undo Bachelet’s reforms, returning to a more neoliberal model. It is perhaps not particularly surprising that Piñera is a multi-millionaire businessman with a background in the housing market, banking, investment, and of course that he is an holds a Masters and PhD in Economics from Harvard (TeleSur, 2017). His plans for austerity, and a return to for-profit university education, have sparked protests once more. The direction of Chile for the future is unclear, but under the current presidency it is evident that the project of neoliberalism will continue, and that economic growth is to be prioritised over the wellbeing of Chilean citizens.

Argentina: Common Origins, Different Trajectory

The legacy of neoliberalism in Argentina began in much the same way as in Chile, implementing similar market reforms. They also shared similar antecedents, with both countries undergoing an extension of the state in the 1970s: under Peronism in Argentina and Allende’s Unidad Popular in Chile (Undurraga, 2015). The political climates at the time were disadvantageous to the elites, who were largely supportive of the military coups that – in their eyes – ‘took back control’ of the countries. According to Undurraga (2015), “The brutal military regimes in Chile (1973-1990) and Argentina (1976-1983) had the same peculiarity of combining widespread repression and radical free market reform” (p. 15), which is a curious combination when one considers that militaries depend on state resources. However, the neoliberal reforms were attractive to both militaries due to their potential to depoliticisation they offered by fomenting competition between individuals, and thus neutralizing collective action and group pressure placed on the state (ibid.).

With neoliberalism’s development in each of the two countries, their policies on marketization took them in different directions, leading to a post-neoliberal politics in Argentina, and tempered neoliberalism in Chile (Undurraga, 2015). Argentina, like Chile, is an example of an early experiment in market reform that laid the foundation for neoliberalism’s adoption across most of South and Central America. Undurraga (2015) explains that, “While the ‘Chicago boys’ led radical transformations under the Pinochet regime (1973-1990) in Chile, Finance Minister Martínez de Hoz attempted to implement an analogous programme under the Argentinean Junta (1976-1983)” (p. 11). However, it was almost a decade later that these reforms were rolled out, with President Menem’s (1989 – 1998) ‘convertibility plan’,

The convertibility plan had lasting consequences – both economic and social– in Argentina. Undurraga (2015) explains, “On the one hand, the convertibility plan successfully stabilized the economy, achieving a rapid reduction of inflation and interest rates. […] On the other hand, many national industries, accustomed to tariff barriers and protections, could not cope with international competition, and closed” (p.24). This resulted in significant job losses and record-high unemployment (19% in 1995). Undurraga (ibid.) further explains, “Privatized enterprises, mainly administrated by foreign corporations, boasted profit margins much higher than those obtained by nationally owned businesses, generating charges of global exploitation and injustice”. The first few years of neoliberalism saw a ‘consumerist boom’, but was rapidly overshadowed (for those who care to look beyond GDP) by an increase in poverty and social inequality. The neoliberal program lead to reconfiguration of the power structure which strengthened the economic elite at the expense of the working class (Undurraga, 2015).

Unsurprisingly, these conditions lead social movements calling for protection against market expansion to manifest in greater numbers than ever, and Argentina experienced a multitude of pickets, roadblocks, and protests (Undurraga, 2015). The most notable example is perhaps the cacerolazos and riots of 2001 (Pecoraro, 2012) that called for an end to the ruling political classes Undurraga (2015) explains that between 20th December 2001 and 2nd January 2002, Argentina had five presidents, and the situation only came under control when Peronist Eduardo Duhalde restored political power. Argentina ceased all payments on its foreign debt, officially defaulting on 132 billion US dollars, officially terminating the convertibility plan in January 2002. Following this, the peso lost around 70% of its value in just four months. The four years of recession that came prior to this (1998-2002) had caused severe poverty; “In October 2002, INDEC revealed that 57.5% of Argentineans were living below the poverty line and 27.5% were in extreme poverty” (Undurraga, 2015). It could be argued that the repression of the military dictatorship in Chile gave Chileans no choice but to withstand the transitional social costs of its neoliberal reform, whereas Argentina’s democratic neoliberalism buckled under pressure from its citizens. Regardless of whether each country ‘successfully’ completed its transition, and how it achieved this, the implementation of neoliberalism in each country had widespread social consequences and was met with great resistance internally, as well as criticism internationally.

US Influence

Schoultz (1998) argues that US policy towards Latin America is characterised by a perception of inferiority towards its neighbours to the south, and a determination to use any means necessary to secure its interests in the region. One does not have to look back far in history to get a sense of the entitlement with which the US has treated Latin America. Just over a century ago, in 1912, the US president William. H. Taft proudly declared, “The whole hemisphere will be ours in fact as, by virtue of our superiority of race, it is already ours morally”. Galeano (year) argues that, “In the geopolitical concept of imperialism, Central America is no more than a natural appendage of the United States” (p. 107). Campos (2002) echoes this sentiment, stating that Latin America and the Caribbean is “a geographical area where the United States defines and establishes a system of its particular domination” (p. 4), and a platform for the globalisation of US interests (ibid.). In contemporary times, the influence of US neoliberal thought is rather apparent in the particular economic-political formula adopted across Latin America – the so-called ‘Washington Consensus’. The Washington Consensus was “a set of market-oriented policies including privatizations, trade and financial liberalization, elimination of subsidies, reduction of government employment and budget deficits, and control of inflation” (Flores-Macías, 2009), created by the World Bank.

Despite the obvious influences US intervention – whether direct military action or training economists in Chicago – has had on the legacy of neoliberalism in Latin America, it is not by any means an explanation for the larger picture of Latin American neoliberalism in its entirety. Petras (1997) explains that, whilst it makes sense that most leftist thinkers have associated neoliberalism with military regimes and states of terror (since “neoliberal policies and structural adjustments were first introduced in the 1970s by military dictators, in the first instance the Pinochet regime” (p. 80), towards the turn of the century – and indeed the millennium – this association weakened. In what Petras (1997) calls “relatively free elections” (p. 80), overtly neoliberal presidential candidates were elected or re-elected in Argentina, Brazil, Peru, and Bolivia. He explains that, according to ‘conservative commentators’, Neoliberalism has become the “hegemonic ideology – the accepted political discourse of the masses” (p. 80), with the political spectrum shifting as the centre-left become more accepting and accommodating of the neoliberal agenda. It is this, Petra argues, that has consolidated neoliberalism’s position in Latin America.

Despite this political shift, and the validity neoliberalism has achieved with the democratic election success of certain proudly neoliberal politicians, there is certainly another angle from which to view the political legacy of Latin American neoliberalism. Indeed, in free elections neoliberal candidates triumphed in Argentina, Brazil, Peru, and Bolivia. However, the trend has been that directly after said triumphs, the countries’ streets would fill with protesters. These election ‘victories’ and the democratic neoliberal reforms that have followed have generally been met with mass popular revolts, social mobilisations, general strikes, land occupations, and provincial revolts (Petras, 1997). These social movements have rejected the privatizations, structural adjustments, wage constraints, increases in transport, and other changes of the neoliberal agenda (ibid.). Petra (1997) highlights the scale of the discontent by giving the examples of the general strikes in Bolivia in May 1995 and in Paraguay in 1994, in which participated the vast majority of the labour force. According to Petra (1997), these examples of widespread acts of resistance and rejection of the neoliberal political agenda seriously call into question the assumption of “consolidation” in the supposed democratic states where they have taken place.

One of the potential explanations he offers for theses cases is the nature of these countries’ transition to democracy. He says the following,

“In the first place, it is important to recognize that the so-called transitions to democracy have been deeply marked by the authoritarian legacy of the previous military dictatorships. The military rulers and their civilian business and political collaborators have played an essential role in defining and negotiating the conditions of the transition. As a result, most of the state institutions (military, police, judiciary, etc.) of the authoritarian past remain intact. Secondly, the authoritarian socioeconomic system based on elite control of the mass media and the financial and productive system remain intact. The culture of fear and insecurity generated by the military authoritarian period continue and in many cases have been cultivated by the neoliberal electoral politicians, who have discouraged protests as a potential “provocation” that could cause the military to intervene. Finally, and most important, the civilian neoliberal politicians tend to rule by decree and use the military to enforce their policies of privatization and adjustment.” (Petras, 1997, p. 81).

Petras (1997) very efficiently outlines how the nature of the rather recent transitions of many Latin American countries has translated into the political success of neoliberal politicians and subsequently neoliberal policies. He argues that the continuation of authoritarianism limits citizen activity, weakens political debate, and forces politicians into the neoliberal framework which subsequently provides an institutional bias toward the neoliberal political candidates in the electoral process. These candidates in turn exploit the historical legacy of the nation and its repressive political culture, and take advantage of the monopoly of mainstream media, and their power over major state institutions to maintain the focus of the political debate on the neoliberal agenda. This places the centre-left electoral candidates at an immediate disadvantage, from which they generally attempt to recover focusing on “their personal virtues (they are not corrupt), their managerial abilities (they can manage the system more efficiently), and their greater social concern for the “costs” of neoliberalism (they favor increased social expenditures)” (Petras, 1997, p. 81.) However, this only serves to reinforce the neoliberal candidates’ argument that there are no alternatives to their model. Petras (ibid.) stresses that the subsequent blurring of the political right and left has had a negative impact on the electoral successes of the centre-left. He states that, “Since most voters do not have strong ties to any political organization, they become the objects of short-term electoral campaign propaganda in which the neoliberals’ vast campaign funds and quasi-monopoly of the mass media play a decisive role” (p. 82). The authoritarian past of these countries has arguably played a key role in allowing neoliberal politicians to secure favourable electoral outcomes simply by concentrating organizational and financial resources on their election over a limited time period.

To consider the trans-national power relations present in the US involvement in Latin American neoliberalism, one may consider how the Latin America model has differed to others. For example, neoliberalism generally requires state intervention to ensure the smooth running of markets (Dawisson Belem Lopez, 2017), but Latin American neoliberalism can be defined by an absence of state intervention, instead emphasising “the role of multilateral organizations, such as the International Monetary Fund, the World Bank, Inter-American Development Bank, and the U.S. Agency for International Development” (Jordan, 2016, p.1) to manipulate exchange rates, interest rates and the free-market pricing of goods. This arguably allowed neoliberalism in Latin America to take on an extra element of inequality, as not only were market forces protected by the state over the interests of its citizens, but they were also often dictated by US organisations with a vested interest in domination over the region.

Present Climate

After the failures of the 80s and 90s, neoliberalism’s conquest of Latin America has perhaps slowed, but has certainly not retreated. Venezuela bucks the trend, where the Bolivarian government of Hugo Chavez sought to break away from neoliberalism, re-nationalising industries privatised under neoliberalism (such as oil extraction and refining, telecommunications and utilities), implementing price controls, foreign exchange restrictions, trade policy, and radical agrarian reform (Flores-Macías, 2009). These policies of state intervention are a direct contradiction of neoliberal economics, which envisions “a market-oriented form of economy policymaking that seeks to decentralize state authority and redefine state administrative responsibilities through deregulation, privatization, and the creation of common markets” (Jordan, 2016). According to Iber (2018), it was in fact the social unrest caused by neoliberalism’s implementation in Venezuela that cultivated the perfect political climate for the socialists to gain power.

However, despite Venezuela’s break with neoliberalism (which has not by any means improved social conditions in the country) some of the most influential Latin American countries are looking once more to neoliberalism. There are currently proud neoliberal presidents governing in Brazil, Argentina, Mexico, Colombia, Paraguay and Peru (Belem Lopez, 2017), and they are driving forward the neoliberal project in the region. For example, the current president of Brazil, Michel Temer, has been implementing a series of neoliberal reforms on Brazil’s labour legislation, pension system, and procedures for macroeconomic governance, and began his presidency by freezing governmental spending on education and health for the next 20 years (ibid.).

To conclude, neoliberalism in Latin America has had a rocky and somewhat varied history. However, US influence – and in many cases intervention – has had a definitive role in its implementation across the region. Converting the economies of previously ‘developing’ countries, like Chile’s, into competitors on the global market, some would argue that neoliberalism has had a positive impact in the region. However, one only need examine the social consequences of the neoliberal project, and the growing social and economic inequality, to see that to measure neoliberalism’s success based on purely economic variables is to miss a large part – and I would argue the most important part – of the bigger picture: humanity. This may answer the question, ‘what has been the legacy of neoliberalism in Latin America’, but it does certainly not offer an understanding of what will be its legacy. The neoliberal project appears to still be very much underway, and only time will tell.

Campos, C. O. (2002) The United States, Latin America, and the Carribbean: From Panamericanism to Neopanamericanism, in Prevost, G. and Campos, C. O. (Eds) Neoliberalism and Neopanamericanism: The View From Latin America, New York: Palgrave Macmillan.